10 Important Investing Lessons to Teach Your Kids

As a parent, you teach your kids many important lessons. You teach them how to be polite, how to pronounce words correctly, and how to use an inside voice when they shouldn’t shout. Those are all great and valuable lessons. However, do you also teach them about investing?

Here are 10 important investing lessons to teach your kids.

1. Start Early

It’s literally never too early to start investing. If your kids understand that from a young age, then they’re likely to do well in life.

Teach them about the magic of compound interest and the value of getting a high yield savings account. If they’re with you for the first 18 years of life, then they can watch that money grow with you.

2. They Probably Can’t Beat the Market

You might like to teach your kids to be better than other people in many ways. That’s a good lesson.

However, when it comes to investing, teach them that it’s not likely they’re going to be better than the average investor. That way, they won’t take unnecessary risks.

3. Importance of Index Funds

Once your kids understand that they probably can’t beat everybody else in the stock market, teach them to invest in an index fund (a mutual fund that tracks a stock market index). That’s an excellent way for a young person to start investing in equities.

4. Think Long Term

The stock market is a long-term investment vehicle. Teach them to look at the big picture, even when they’re investing at a young age.

5. Diversification

Your kids should be smart enough to not put all their eggs in one basket. Teach them about the value of spreading their money throughout various securities.

6. Participate in Family Investment Decisions

If you want your kids to think about investing, solicit their advice on possible investment decisions that you’re thinking about. That will get them thinking about their own investment as well.

7. Set Goals

If you want your kids to learn to save money, teach them to set goals at a young age. They’ll likely keep that lesson throughout life and even save money in retirement.

8. How to Perform Calculations

If you want to teach your kids how much money they should save for a big-ticket item that they’re planning on purchasing or even for retirement, sit down with them in front of a spreadsheet and go over some calculations. Be sure to examine various “what if” scenarios (what if my investments do well? what if my investments tank?) so that they can get an idea of a best case and worst case situation.

9. Empower Them Enough to Make Mistakes

Give your kids enough control over their money so that they can spend that money on stupid things. Then, teach them to learn from their mistakes.

10. Learn From Good Experiences, Too

If your child did save or invest money and did well as a result, teach them to learn from that experience. It’s a lesson that they should appreciate for life.

You want your children to succeed in life. One of the best ways to make that happen is to teach them smart principles of investing.